Greetings. Welcome to the RingCentral second quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Ryan Goodman, Head of Investor Relations. Thank you. You may begin.
Thank you. Good afternoon, and welcome to RingCentral's second quarter 2020 earnings conference call. I am Ryan Goodman, RingCentral's head of investor relations. Joining me today are Vlad Shmunis, Founder, Chairman, and CEO, Anand Eswaran, President and Chief Operating Officer, and Mitesh Dhruv, Chief Financial Officer. Our format today will include prepared remarks by Vlad, Anand, and Mitesh, followed by Q&A. Some of our discussions and responses to your questions will contain forward-looking statements, including our third quarter and full year 2020 financial outlook and our assumptions underlying that outlook.
These statements are subject to risks and uncertainties. Actual results may differ materially from our forward-looking statements. A discussion of the risks and uncertainties related to our business is contained in our filings with the Securities and Exchange Commission and is incorporated by reference into today's discussion. In particular, our business is currently being impacted by the COVID-19 pandemic.
The extent of its continued impact on our business will depend on several factors, including the severity, duration, and extent of the pandemic, as well as actions taken by governments, businesses, and consumers in response to the pandemic, all of which continue to evolve and remain uncertain at this time. RingCentral assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. Unless otherwise indicated, all measures that follow are non-GAAP with year-over-year comparisons. A reconciliation of all GAAP to non-GAAP results is provided with our earnings release and in the slide deck. I encourage you to visit our investor relations website at ir.ringcentral.com to access our earnings release, slide deck, our GAAP to non-GAAP reconciliations, our periodic SEC reports, a webcast replay of today's call, and to learn more about RingCentral.
For certain forward-looking guidance, a reconciliation of the non-GAAP financial guidance to the corresponding GAAP measure is not available, as discussed in detail in the slide deck posted on our investor relations website. With that, let me turn the call over to Vlad.
Good afternoon, thank you for joining our second quarter earnings conference call. We hope all of you are safe and in good health. The pandemic has created unprecedented global challenges and is having a transformative impact on how businesses operate now and in the future. Cloud transformation of business communications platforms has become a priority as companies adapt to a work-from-anywhere environment. Businesses of all sizes now require communication solutions where employees can work productively with customers, partners, and peers from anywhere, on any device, and in any mode. We embarked on this journey of enabling cloud migration of business communications over a decade ago. RingCentral is now uniquely positioned to meet this demand with our enterprise-proven, global, and trusted unified message video phone, or MVP platform. The results speak for themselves.
We delivered a strong second quarter as we continue to benefit from strong contributions from mid-market enterprise and our channel partners. Let me highlight some recent key events. First, we announced an expansion of our strategic partnership with Atos. Second, together with Avaya, we announced a further global rollout of Avaya Cloud Office by RingCentral. Third, we saw good uptake on our new RCV offering, which we launched in early April. We'll talk more about this later. Lastly, we were humbled to learn last quarter that RingCentral has been named to the Forbes Global 2000 list, putting us alongside the biggest and most valuable companies in the world. As to our financial performance, revenue and non-GAAP EPS exceeded our guidance. Key drivers continue to be mid-market enterprise and channel. We delivered a record number of seven-figure TCV wins this quarter.
Several of these large wins were in our targeted verticals of healthcare, financial services, and education, and also included multiple international wins. Key metrics for Q2 were solid across the board. Total revenue grew to $278 million. This is a 29% increase year-over-year and is above the high end of our guidance range. Importantly, total annual recurrent revenue, or ARR, grew 33% year-over-year to $1.1 billion. The difference between overall revenue growth and higher ARR growth is driven by higher adoption of RingCentral app relative to sale of new desktop devices. We believe the strong Q2 results further validate RingCentral as the industry-leading platform in the global UCaaS market. We look forward to building on this momentum and expanding our market reach to maximize the opportunity ahead. On that note, we recently announced that RingCentral will be the exclusive UCaaS provider to Atos Unify.
Unify, formerly Siemens Enterprise Communications, was acquired by Atos in 2016. Approximately 60% of their on-premise install base of 40 million users is in Europe, with a strong presence in Germany. This opportunity is in addition to our system integrator relationship announced earlier as part of the Atos digital workplace portfolio. Importantly, during the last few months, Atos and RingCentral saw a pent-up demand to address Unify's install base together. Atos has accelerated its reseller outreach efforts and now has more than 90 channel partners trained to sell the new Unify Office by RingCentral or UO. We expect to be live with UO in 11 countries by the end of the year. This includes Germany, France, Spain, Italy, Netherlands, Austria, Belgium, Ireland, U.S., U.K., and Australia. We're also excited to welcome Atos as a direct customer to the Unify Office solution.
Atos will start with deploying UO to the 5,000-strong employee base of the Atos UCC division, formerly Unify. Atos will later expand UO to their entire base of over 100,000 employees. As to Avaya, based on joint channel enablement efforts and first joint customer wins with Avaya Cloud Office or ACO, we are quite pleased with the early progress of this partnership. There are now over 2,000 channel partners on board. There is a robust pipeline building and several important large deals already on the books. An example of a large joint win was the selection of our platform by a large BPO that supports the U.K. Government COVID-19 tracing program to control the spread of the virus. In this highly urgent and critical use case, the solution leveraged RingCentral's open API platform and was rolled out to multiple thousands of users in approximately six weeks.
In June, ACO was launched in Australia, Canada, and the U.K. Several new features and additional migration tools were also released in June, which will make cloud migration even more seamless moving forward for large customers. Of course, our success with these great partnerships is rooted in our leading comprehensive Message, Video, Phone, or MVP platform. It is only by enabling their employees to communicate via any mode from any device and from anywhere that businesses can stay productive during these trying times. To that end, we saw double-digit growth in messaging and triple-digit growth in video and mobile voice minutes on our MVP platform quarter-over-quarter. Speaking of video, our new open standards-based RingCentral Video or RCV platform has been quickly evolving since its launch in the beginning of April.
Feedback and customer reception has been very positive, and we already have over 10,000 paid RingCentral Office accounts enabled with RingCentral Video. Building on the successful launch of RingCentral Video in June, we announced the initial release of RingCentral Rooms. This extends the power of RingCentral Video to conference rooms and meeting spaces, which remain important even in these trying times. Overall, we're proud to be able to assist in the fight against the global pandemic. Our mobile-first enterprise communications platform, combined with our open integration API, has enabled major institutions like State of West Virginia to rapidly deploy our solution with embedded communications capabilities for thousands of contact tracers to reduce the impact of the pandemic. In summary, RingCentral has always been committed to enabling workforces to productively communicate and collaborate via any mode, on any device, from anywhere.
With the new world order, working from anywhere is no longer a nice-to-have. It is now a hard necessity. RingCentral is now becoming a platform for business continuity. With our well-proven MVP global solution and our rapidly evolving strategic partners and reseller ecosystem, we're confident that the cloud will continue to win, and RingCentral will continue to win in the cloud. I will turn the call over to our President and Chief Operating Officer, Anand Eswaran.
Thank you, Vlad. Good afternoon, everyone. Operationally, Q2 was a very strong quarter. We are laying the foundation for the next phase of sustainable multi-year growth. The business is thriving, and the demand for our cloud-based business communication solutions is higher than ever. Our open integrated MVP platform enabled us to add more new customers in Q2 than any other quarter in history. Interestingly, this was accomplished without requiring much physical travel for our sales and professional services organization. There was broad strength across a number of important segments and initiatives. In the enterprise segment, we saw a record number of seven-figure TCV wins. We also had a very strong quarter for our contact center portfolio, which was included in approximately half of our seven-figure wins. Our channel plays a strong role in our success. Channel ARR increased 60% year-over-year to $375 million.
As we continue to grow to become a multi-billion dollar revenue company, we are expanding our strong foundational focus on the four Ps: products, people, processes, and partners. These efforts will enable us to serve our customers' needs even better, especially in targeted vertical markets. Let me share some more details. First, in the product area, innovation was and remains our first principle. We launched RingCentral Video, RingCentral Rooms, and together with Avaya, we launched Avaya Cloud Office by RingCentral with subsequent international expansion. I would also like to highlight that this velocity of innovation happened with most of our development teams working remotely. Second, on the people front, we have continued to expand our management team, attracting top talent, including incredible industry leaders like Chief Revenue Officer Phil Sorgen and our Chief People Officer, Gunjan Aggarwal, who we announced recently.
Attracting and retaining a strong and diverse pool of talent is so vital to our long-term success, and it is a priority for our management team. On that note, hearty congratulations to Vlad for recently being named amongst the top two CEOs for diversity and amongst the best CEOs for women in the annual Comparably survey, covering 60,000 organizations. Regarding business processes, we are making great progress to automate and digitize our end-to-end process and operations as a foundation for scale. This will enable us to apply AI and machine learning to better predict customer needs and deliver enhanced and proactive value to our customers. Now let's talk partners. First, Vlad shared the details on the strategic partner front with Avaya and Atos, which helps us to further scale our global reach and capture the massive opportunity ahead.
Second, we continue to see strong performance from our service provider partnerships, led by a renewed momentum with AT&T. Finally, we also continue to invest in our channel partner ecosystem. During the quarter, we launched IGNITE!, a new partner program. This program enables partners to own the entire sales cycle with their customers. Overall, our partners contributed to over 70% of our seven-figure wins in the quarter. Let me bring them to life with a few great customer examples. One example of a marquee channel win in Q2 is Marvell Technology, a leading global semiconductor company. Marvell needed a highly reliable, scalable, and a global communications platform to replace their legacy on-premise systems. Our mobile-first platform, our global coverage, and integrations with other enterprise solutions were important differentiators in securing the 6,500+ user win spread across 20+ countries, including India and China.
Another notable channel win was with one of the largest custom print apparel companies. They needed a tightly integrated cloud-based communications and contact center solution. This is a 800+ user UCaaS win combined with over 250 RingCentral Contact Center seats. As we expand our go-to-market motions, we are finding compelling new opportunities across several important verticals. In healthcare, we had a seven-figure upsell win at a leading U.S. provider of behavioral healthcare services. This important customer is using our unified communications platform to better operationalize their business across the country. In Q2, they expanded by 50% to over 7,500 users as they continue to roll out RingCentral across their increasingly distributed workforce. In education, a large, globally renowned U.S. university expanded their use of RingCentral Office with an additional 1,500 users added during Q2.
This is a great example of the opportunities emerging due to COVID, where we saw an accelerated deployment cycle at this university with tens of thousands of potential users still ahead of us. There is higher usage of our RingCentral apps versus desktop phones, which is a positive indicator of better user engagement. In addition, the implementation has been accelerated to ensure seamless continuity for the upcoming school year. In financial services, we secured a 2,500 user win across 15 countries with a large private equity firm. Finally, last year, we highlighted an Engage Digital win with a large air transportation company. Over the past year, we have demonstrated the value of our RingCentral platform in helping to transform the company.
This transformation became more urgent in the face of COVID-19, with the workforce moving to work from home. In Q2, we saw a trifecta. First, the customer extended to our UCaaS solution with 2,400 RingCentral Office users. They further expanded their CCaaS footprint by 60 agents. Finally, they consolidated all their digital point solutions to the RingCentral platform. It is great to see customers increasingly embracing the value of the full RingCentral portfolio. Today, the cloud transformation of communications is a top priority for every business to meet their enterprise needs at a global scale. With our enhanced focus on products, people, processes, and partners, we are in a strong position to be a core part of our customers' digital transformations and address the large opportunity ahead of us. I've been with RingCentral for a little over six months now.
I'm humbled by our vision, the company's commitment to innovation, and our incredible people-centric culture. I'm excited to be a part of the next phase of RingCentral's growth journey. Now for the financials. I will turn the call over to our Chief Financial Officer, Mitesh Dhruv. Thank you.
Thanks, Anand, good afternoon, everyone. Q2 was a solid quarter on multiple fronts. First, ARR for our flagship UCaaS solution, RingCentral Office, surpassed $1 billion for the first time and grew 36% year-over-year. Second, our overall subscription revenue grew 32% year-over-year, along with an overall operating margin of over 10%, demonstrating solid, profitable growth. This is a testament to the large opportunity and our consistent execution. Third, we are winning larger enterprise customers with a record number of seven-figure TCV deals, demonstrating how strong the demand is for our product in the COVID environment. Four, ACO is off to a good start, boding well for the long-term opportunity. Finally, we announced UCaaS exclusivity with Atos Unify, further expanding our global reach and complementing our existing partnerships. Businesses are turning to RingCentral as they transition workforces to a work from anywhere environment.
Mid-market and enterprise customers defined as 25,000 or more in ARR had another strong quarter with ARR up 50%. Underpinning the strength was bookings growth from new enterprise customers with 100K or more in ARR, which was up over 50% sequentially. As it relates to our existing customer base, we mentioned in May that small businesses in verticals like retail, travel, and hospitality that account for less than 10% of our overall install base saw higher churn. As the quarter progressed, the churn rate improved consistently, although still not at historical levels. With overall Q2 on solid footing, let's move on to our 2020 outlook. We are encouraged with recent trends, in this crisis environment, we continue to make prudent assumptions for the remainder of the year. Given Q2's outperformance and our highly predictable recurring revenue model, we are raising our annual guidance.
We feel confident in executing to our plan. Now on to specifics. We expect subscription revenue growth of 28%, up from 25%-26% previously. We expect other non-recurring revenue growth of 8%-12%, reflecting customer engagement shift from desktop phones to RingCentral apps on laptop and mobile devices. We expect total revenue growth of 26%-27%, up from 24%-25% previously. We expect non-GAAP EPS to be between $0.92 and $0.94, up from $0.91-$0.94 previously. This includes a $0.01 impact from lower interest income. In summary, the global pandemic has provided a structural catalyst for UCaaS adoption, and RingCentral saw stronger demand than ever. Even when COVID is behind us, which we hope happens as quickly as possible, we expect that the new normal for enterprise communication will be cloud first, as on-premise systems have shown to be inadequate for the needs of businesses.
We believe that the market inflection is past the point of no return. RingCentral is strongly positioned to take advantage of this trend. We have an industry-leading product, a steadfast commitment to innovation velocity, as well as a global and diversified go-to-market reach. Our momentum with AT&T, progress with Avaya, and expansion with Atos further enables us to scale our market reach and add incremental layers of long-term profitable growth. With that backdrop, we are confident in our ability to lead in this $50 billion-plus UCaaS market. Of course, this would not be possible without our amazing employees, committed partners, and loyal customers. A huge thank you to all of them. With that, let me turn the call to the operator for Q&A.
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, to ask a question, press star one on your telephone keypad. Our first question comes from Brian Peterson with Raymond James. Please state your question.
Thanks, gentlemen. Congrats on the really strong quarter. Mitesh, maybe I'll start with you. Given the large revenue beat, I think we're kind of used to seeing that. We actually saw a big beat on the bottom line as well. Maybe help us understand how you're thinking about the growth/margin balance going forward as you guys head into 2020 and beyond.
No, thank you, Brian. The quarter did progress, as you saw. We did beat the quarter pretty handily. The quarter did progress better than we expected initially throughout the quarter. A lot of the dominoes did fall our way there. You're right. We did beat the subscription revenue by about $11 million, and then $5 million of that fell to the bottom line, close to a 50% margin flow-through from the revenue. It really, again, speaks to the unit economics and the inherent leverage we have in the business model, where you can treat this 50% incremental revenue margin as a proxy for our install-based recurring margin. Really strong unit economics there.
The playbook, Brian, is going to be very similar to the way we have been executing, which is that we'll thoughtfully deploy this upside towards innovation and go to market for growth. Meanwhile, we will stay very disciplined with the focus on profitable growth as we have been, and promise expansion of 40 to 50 basis points of margin expansion per year.
Understood. Thanks, Mitesh. Maybe a follow-up for Vlad. I know you gave some perspective on RingCentral Video, but I guess we're a few quarters in with RCV. I'd be curious how you would gauge your progress so far. Thanks, guys.
Yeah. Hey, Brian. To be clear, we're one quarter in with RCV, so it's still early. Progress has been quite robust. We are actually seeing a good number of accounts on RCV now. It's around 10,000 paying accounts at this point. Most new customers are now getting RCV. As we stated when we first launched the product, we expect overall customer base to migrate from RingCentral Meetings, which is powered by another provider, to migrate to RCV over time. That's still the plan. We are working very hard on making this decision very positive and an easy decision as the product matures. So far so good. It's performing well.
Good to hear. Thanks, Vlad.
Thank you. Our next question comes from Bhavan Suri with William Blair. Please state your question.
Hey, guys. Can you hear me okay?
Yeah.
Yeah.
Perfect. Congrats. Solid quarter, gents, all the way around. I got two questions. Maybe first for Mitesh. Mitesh, you've got a lot of puts and takes here. You've got really solid growth over 100K. You've got churn improving. Can you highlight the puts and takes of the quarter and what drove the optimism? I'd love to understand some of the puts and takes through the quarter, and I got a quick follow-up.
Yeah, sure, Bhavan. I would say a couple of things. Two, call it maybe three points. On the quarter, let's start with new logo on the very top. We did see strength across the board on new logo. If you look at the enterprise segment, 50% sequential growth is what we saw. Really good strength there. Even in the TCV deals for $1 million, we saw 70% of that came from new logos. That's point one. Point two, on the deal sizes itself are getting larger. The third one I'd say is customers actually are adopting for longer duration. Those are two or three points on the deal momentum. If you look at the go-to-market side of it, we are seeing a lot of strength from the channel partners as well, which we grew 60% ARR.
If you just combine it all, if you look at the takeaways for these trends, there are a couple of takeaways I would say. One is, customers are comfortable with a long-term commitment to UCaaS during this environment. Second is, that COVID is becoming a structural positive for us, for RingCentral. The initial fear, at least when we were modeling the year was that, hey, there could be this panic buying in Q1 and then the demand fades. We are not seeing that head fake. That's point two. Third is with the demand trends we are seeing, we are definitely adding much higher lifetime value customers with a lot of potential to land and expand.
That's really helpful, Mitesh, and at some point, it'd be great if you revisited the LTV to CAC at the higher end of the enterprise. My second question is for maybe all of you, Anand, Vlad, et cetera. Microsoft obviously announced Friday or maybe late last week that they're suspending some of their core features around carriers, around distributing calls by managing that. They don't want to be a carrier anymore. They said it indefinitely. Obviously, you also announced the integration with Teams. Look, I view it as a massive positive, but honestly, I'm not sure how you all think about what Microsoft announced and the Microsoft partnership, from a long-term perspective.
I don't care near-term, but as you view their stepping back from sort of competing with carriers and the integration of RingCentral with Teams, Vlad, Anand, how do you guys think about what that means for RingCentral over the next three to five years?
Yeah.
Yeah.
Vlad, go on.
Yeah. No. Hey, Bhavan. Yeah, look, let me do high level and obviously, Anand being freshly from Microsoft can perhaps add to this. Look at the high level, we think that Microsoft could be a long-term strategic partner for us. We do feel we're bringing complementary strengths towards moving customers' communications from on-prem to the cloud. Obviously, we're very strong in the phone system side of this equation. We speak of MVP, so message video phone system.
Vlad, that's for phone, right? That's kind of where they pushed out, right? To be clear.
Well, no, but I'm saying outside from RingCentral, right?
Yeah.
Microsoft, again, you need to talk to them directly on what their strategy and goals are. From what we can tell, they're very strong on the messaging side with Teams and less so with phone in particular. At a high level, it seems it's a positive for us. Hopefully positive for the customer as well. How the market exactly will take it, I mean, we'll have to see. Anand, anything to add to this?
No, you said it all, Vlad. I mean, for us, it's very simple. As Vlad said, the details, you guys should talk to Microsoft, but we are further partnering with them. Direct Routing was great. It gives their Teams customers access to the best phone system in the industry. On top of it, we are investing more in extending that wide moat of enterprise feature debt for what is already a best-of-class system. Net-net, we feel good about it.
That's incredible. I would like to keep this going, but I won't. Thank you, gents. Appreciate it. Congrats. I'll pass on.
Thank you.
Our next question comes from Nikolay Beliov with Bank of America, Merrill Lynch. Please state your question.
Hi. My first question is to Mitesh. Congrats on the results here. Q2 results came in line with our Q check, and also a few core points from the second half pipeline. Mitesh, I noticed the guide for 3Q and the rest of the year was maybe a little bit more conservative than 2Q. Just wondering if you can walk us through what you're seeing, what trends are you seeing in the pipeline or churn or new business that caused you to be a little bit more conservative than last quarter.
No, sure, Nikolay. Yeah. Let's start from the top. The overall assumption for what we've made is that the macro does not significantly get better than what we experienced in Q2, and to a large extent the lockdown does continue. That's the overall thematic assumption. Now, if you take it a click below for guidance, as you pointed out, a couple of things. What we have assumed is that the productivity for our salespeople or sales force does not improve. We saw quite the contrary trend in Q2, where we did see an expansion of our pipeline. We did see increased conversion rates. Given the prudent assumptions we always take, we have assumed lower close rates on our pipeline. That's point one.
Point 2, as you also asked on churn and net retention, we've made more conservative assumptions in the back half than we saw exiting Q2. Hopefully, we'll do better than that, and the world opens up better. For now, we are making those assumptions. We feel really good about the way we are guiding, and we feel good about executing to our guidance.
Thank you. A follow-up for Vlad and Anand. Can you guys help us contrast and compare the quality of the install base of Atos versus Avaya? Secondly, the cost to book new business versus comparing Atos versus Avaya and your direct and channel business. Thank you. That is for me.
Okay, let me take maybe the first part of the question. Quality. Look, users are users, I don't know how you can say quality. The one thing is, with Atos is, many more of their customers are direct engagement as opposed to through the channel. One can think that perhaps it would be sort of, I don't know if it's an easier motion, but maybe a somewhat shorter motion to get to those customers. Of course, there is the geographical dispersion, as well, with most of Atos' customers being in Europe, in Germany in particular. Of course, Avaya is a very international, still a U.S.-centric company. I have to say, when we were evaluating this opportunity and deciding to do this extra step that we've announced, it really did seem to be mostly, if not entirely, complementary to Avaya's base.
Again, with both cases, the key theme here is converting existing on-prem users to the cloud while keeping their traditional brand affiliation. Inasmuch as users we don't see that there are too many, if any, customers who would use both Avaya and Atos at the same time. From that perspective, it seems to be very, very complementary. If Anand and Mitesh can add on to the numbers.
Mitesh can talk about cost.
Yeah.
I was just-
I think that.
Yeah. Okay.
Thank you. On cost to book, Nikolay, look, I think that's the key part, right? When we look at all these distribution engines for these partnerships, our cost to book is lower upfront because we don't have to spend the initial sales and marketing. Actually, alongside that, the other vector or the other side of the coin is higher lifetime value. These partners are incented to hang on to the customers, we are seeing not only lower cost to book, but also a higher lifetime value. I think it's a two-pronged approach there.
Thank you, guys.
Thank you. Our next question comes from Sterling Auty with JPMorgan. Please state your question.
Yeah, thanks. Hi, guys. Wondering, you mentioned the success and you're happy with the performance for Avaya, but specifically just want to check in on where you are on the ramp of things like the tools to help the acceleration of deployment migrations over to RingCentral, whether all of the channel trainings are complete. In other words, are you fully ramped or is there still a couple more milestones that we should be looking for to see even bigger contributions coming out of the partnership?
Yeah. Let me take that. In Q2, we've been at migrations for a while, as you can imagine, even before the Avaya partnership was done. In Q2, we actually delivered more automation on the migration scripts. As far as migration scripts go, I think we have fully deployed that working with Avaya, and we feel pretty good about it. From a product standpoint, it's a journey. You saw that we launched ACO 2.0. We launched it internationally in U.K., Canada, Australia, and we launched it more broadly across Europe in H2. That's a journey.
Got it. Then one follow-up, Mitesh, maybe for you. Looking at the go-to-market motions that you have now, how much savings have you gotten on the travel, et cetera, from COVID-19? How much of that maybe will you be able to hold on to permanently post-COVID, given the success you're seeing in the setup and the go-to-market motion you have now?
Yeah. No, I think, it's hard to exactly quantify for you, although we have the exact numbers. Look, we do have a lot of discretionary spend, not just travel, but events, customer events, employee events. All those are getting repurposed for R&D and go-to-market. Post-COVID, yes, this is going to be a wake-up call for all companies to make sure we look at all discretionary spend and tighten the belt. A fair amount of discipline is going to go on, and I think we'll see some more leverage going forward.
Got it. Thank you.
Thank you, Sterling.
Our next question comes from Terry Tillman with Truist Securities. Please state your question.
Yeah. Good afternoon, gentlemen, and congrats as well from me on the quarter and the outlook. I guess, maybe the first question is, as you're further into the opportunity with Avaya, what have been some of the early learnings, and how do you see this opportunity playing out as it relates to actually driving ARR either this year or next year compared to just months ago?
I had a follow-up.
Yep. Yeah, I'll take the first part, and I'll let Mitesh answer the second part of it. The first part, early progress is great. We've onboarded 2,000 + partners. The pipe is very healthy and in as little as a quarter, we had several large deals, in Q2, which feels good. It's broad. We had wins in retail, higher ed, manufacturing, the BPO space. It's a broad vertical landscape. All the fundamentals are good, as we expected, and it continues to be for the second half as well. Mitesh, I'll let you answer the second half on the financials.
Yeah. Now the CFO's time to temper expectations. Thank you, Anand, for doing a marvelous job there in setting great expectations. No. All good what he said. In terms of the contribution for the quarter, we are a billion-dollar revenue business, so it doesn't quite move the needle. It was immaterial in terms of contributions for this quarter and no change to the expectations. We do expect this to start the ramp to take hold in Q4 of this year and then continue to in 2021.
Mitesh, I think in your prepared remarks, I like this phrase, "Layers of growth." Whether it is Avaya, Atos, AT&T, Microsoft Teams integration, Engage, I'm sure I'm forgetting about five or 10 of them, but investors ask us lots of questions because they're curious about these opportunities. How do we frame this as it relates to maybe the growth profiles when we move into next year? Do some stand out more than others? Just a little bit of help on all these catalysts, kind of confluence of all those catalysts. Thank you.
Yeah. Yes, Terry. Yeah, we do have multiple catalysts going on. If I can summarize these catalysts in, let's say, two buckets. Bucket number one is expansion of market, and bucket number two is, call it strategic partnerships. Both are starting to ramp in this year. If you look at the move of market, if you look at the bookings for mid-market and enterprise, over 60% of our office bookings came from that segment. We also announced a 100,000 seat win from Atos. I will tell you that we have more deals of this size in the pipeline. Timing of these large deals is unpredictable, but customers are evaluating RingCentral for work from anywhere environment, I will tell you that. That's sort of bucket number one, which is more expansion of market. Second is, let's lump these things together in partnerships, Avaya, AT&T, Atos.
The play there is extending our reach to a broad PBX install base. That's one. International diversification is the second one. Nikolay asked about the cost of acquisition. It does lower our cost of acquisition. I think these are the two big long-term layers of growth. The way we are thinking about this business is, it's an organic distribution strategy for us. Going forward, we'll give you color on each and every partnership, but it's going to be hard for me to break out individual pieces the way I did for ACO this time.
Thank you. Our next question comes from George Sutton with Craig-Hallum. Please state your question.
Thank you. I wanted to poke a little bit more at the international expansion opportunity. As you're obviously working with a growing list of both strategic and channel partners around the world, can you give us a sense of kind of where you are, and what you see as the duration of growth opportunity? How are you planning to expand outside of the U.S., either through these partners, through your own traditional organic growth means? I think that would be helpful to understand.
That's a great question. I'll take that. The first vector is our strategic partnership. That's where Atos and Unify makes a big difference in extending our reach internationally. We already see joint pipe building up in Europe, which traditionally has not been a place where we play in. We also have a direct sales presence in U.K., in France, in Australia, and we continue to do well there as well. The primary vector of growth right now will come from the partnerships.
Got you. Curious, clearly on the distribution side with the Atos' and AT&Ts and Avayas of the world, you have a distribution advantage. I think what we get challenged by clients on a lot is trying to explain the advantage you have from a product perspective. For years, Vlad's talked about outinvesting everyone. I wondered if you could, in a world where everyone has a platform of integrated capabilities, how are you trying to define your unique competitive advantages on the product delivery side? Thanks.
Vlad, you want to take it? While Vlad is getting on. This is how I would put it. We look at this broadly for us. First is the different modes of message, video, phone, the whole platform coming together. Phone is mission-critical, and the level of enterprise feature depth we are adding on the phone system is best in class. The second, as I look at it, is elements like the work we are doing on security, on user experience of the unified application is a major product differentiator for us. The third thing I'd call out is just trust. The fact that we have been on five nines from a reliability and security standpoint, for a few quarters now.
Again, it makes a massive difference. The fourth thing I would call out is just the international footprint, the geographic footprint we have of where Global Office is available and works natively is, again, there's a huge and wide moat around it. All of these come together to make the product clearly differentiated. On top of that, what also works is our ability to work with our partners to quickly create joint products, to quickly make sure that we can meet their security requirements, which are very stringent as well. Those things then finally come together as the icing on the cake to make these partnerships, these distribution models work better than most.
Yeah. Let me just add to that. Anand, you can decide, but I'll just double-click. Look, firstly, we do believe we have a differentiated platform, message, video, phone. If you remember, George and others, for some time I was saying, "Well, hey, the only other provider out there with a similar fully encompassing vision is Microsoft." With the latest news, Friday and today, it seems that they would be de-emphasizing the voice part, if we understand what they're saying. Outside of that, the statements do hold. We do have a differentiated approach in these modalities. Clearly, we are the strongest on the phone system side, and that keeps on carrying the day for us. Our wins with AT&T, with Avaya, with Atos, I'm just going in chronological order here, are a testament to that. Do not underestimate our video efforts.
We know we're not in the lead now yet, but I can tell you we're working very hard on it to close all gaps. It will be getting incrementally better, and will be a world-class product. Our messaging is pretty good as well. Net-net, it's far and long ways from being commoditized. Should we ever get to that point, you already said it, we do have this inherent distribution advantage. All things being equal, we think it will, I don't know if it will carry the day, but certainly will help. All things not being equal as are not now. Remember, from day one you've known us until now, our biggest issue is access. We win way more than we lose in head-to-head comparisons or competes against the entire field. Where we don't win is where we're not at the table.
People like AT&T, people like Avaya, people like Atos should make those cases a lot harder to find to where we're not even at the table. That's what we're banking on. Again, so far, so good. Especially, I think Anand already mentioned, we have quite a bit of effort in specifically making these partnerships to be much more turnkey, much more streamlined, and also much deeper with migration tools, with custom endpoint support, with back office integrations that are also part of the migration tool scenario, for example, with Avaya. There's a lot more going on, and we think it's to a good end. Yeah, we should be good about-
Thank you.
strategically. Thank you.
Ladies and gentlemen, in order to get as many questions as we can during our remaining time, we ask that you do not ask a follow-up question when you queue. Our next question comes from Michael Turrin with Wells Fargo. Please state your question.
Hey there. Thanks. Good afternoon. Mitesh, you're again, we've referenced it multiple times, showing strength across multiple key metrics. Even the ARR growth in SMB looks like it picked up a little steam here. Can you maybe talk through some of the key factors driving that uptick, as that one surprised us a bit more than some of the others here?
Yeah, no, I think it's a good observation, Michael. Yes, we did see strength in SMB as well this time, especially in new logos. A couple of things are happening under the hood, if I were to take it a click below for you. Our brand is resonating. We are seeing strong evidence of growth in e-commerce. Actually what's happening is we are spending less money in acquiring these new logos in marketing. I think the combination of these two or three trends is actually helping our CAC be lower versus the LTV. Going forward, I think the right bogey to target is about 15-ish% in the overall SMB space. Near-term trends do indicate that we are seeing some steam in self-serve and e-commerce.
Got it. Thank you.
Our next question comes from Samad Samana with Jefferies. Please state your question.
Hi, good afternoon. Thanks for taking my question. I guess I just wanted to follow up on the Atos partnership. You initially announced a partnership with them at the beginning of 2020, and now this is a pretty significant expansion. I'm curious maybe what the proof points were in that six-month period that made them want to extend the partnership. Mitesh, as you think about those 100,000+ seat deals that are in the pipeline, are those following these partnerships that you guys have ramped on, or were those really already in the pipeline before the ramp of ACO and Atos? Thanks again for taking my question.
Yeah. Go ahead, Anand.
No, I can just answer the first part of the question. I'll thankfully delegate the second half, Mitesh. The first half is just one, the first few months of the partnership, the traction with the joint sales forces, great. We were a part of the digital workplace portfolio of Atos. The message to their customers was resonating hugely. COVID happened. Immediately they saw the difference this could make by extending it across the unified base as well. Both of those, the traction of the portfolio to their enterprise customers and then COVID first came together, made this extension only make sense. That's how this, I guess, this happened. Mitesh, I'll transition the rest to you.
Yeah. Hey, Samad. I think the second part is, it's a scale that gets scale, correct? Yes, it's a mix, actually. We have some in the pipe. We're getting more with these partnerships. I think it's starting to spin up a virtual circle for us here.
Thank you. Our next question comes from Will Power with Robert W. Baird. Please state your question.
Okay, great. Thanks. I guess I wanted to come back to some of the earlier comments on contact center, that being a key part of roughly 50% of your larger deals. I just, I wonder, generally, if you could kind of characterize the demand you're seeing there and maybe just talk a little bit about the roadmap going forward to make sure you're positioned for that demand. Obviously, you've done a lot organically on the digital side, but do you need to do more and bring more of the capabilities in-house as opposed to partnering with inContact and others over time?
Yeah, no, it's a good question. I mean, our partnership with inContact remains as strong as it has ever been. Obviously, we are investing in integrating Engage Voice and Engage Digital strongly with our RCO platform. The product efforts are on, as we have always shared with you guys. As you look at the sales side, simple things like, last year we shared Arch Capital, and the UCaaS win there. Now, we are basically seeing them, not just deploy UCaaS on an accelerated basis, but they're also picking up on needing to deploy a strong CCaaS solution. That's where our inContact partnership makes a difference because the integration, the voice quality of the RCO platform, the routing capabilities, all of it come together where Arch Capital extended the UCaaS footprint to CCaaS.
That's why you saw that a large percentage of our large deals also then become contact center deals. That's a key thing. Now, going forward, I think companies are looking at CCaaS and UCaaS decisions, and we feel we are well-positioned.
Okay. Thank you.
Our next question comes from Meta Marshall with Morgan Stanley. Please state your question.
Great. Thanks. You noted that conditions have improved throughout the quarter. I would guess that some of your customers are still a little stressed. Are you accommodating them with payment pauses or reducing seat counts, or has it caused any change to forward contract structures? Thanks.
Hey, Meta. Yes, both are true. We are accommodating. Customers are seeing a couple of things. They're seeing two trends. Trend number one is the payment deferrals. We did see customers approach us more in April, subsiding in May and June for payment deferrals. We are accommodating them. In the books, we've taken enough appropriate reserves to cover for the exposure. The second part we are seeing actually is an interesting one. It's a bit counterintuitive. We are seeing one that you'd expect, that customers are not paying us upfront for annual prepay. That's why you see some headwinds in deferred revenue. In fact, customers are signing up for longer duration contracts, which does bode well for the long-term structural growth of UCaaS. We are seeing those three trends, and this is how we've accounted in the guidance.
Got it. Thanks.
Yep. You bet.
Our next question comes from Kash Rangan with Bank of America, Merrill Lynch. Please state your question.
Hi. Thank you very much, and c ongratulations. I'm wondering if you guys have a perspective how in long term the lifetime value of a customer or subscriber will change as you have video. How does it change retention, output uptick, et cetera? Just high-level thoughts there. You certainly agree with me that you have a very unique proposition, which is unlike when Zoom and Slack in the marketplace. How does this play out in the business model super long term? Thank you so much.
Let me take that, Kash. Thanks for the surprise cameo sec there. If you look at unit economics, right? It's driven by two things in my mind. One is churn, and second is upsell and net retention. Once we look at, if you layer on, you said two things. One is video and the product, and second is partnerships. Let's take video first or the product itself. Given that we are expanding a platform with MVP, it does put in more barriers to exit and make our base stickier, which would be an inhibitor of churn. Reduced churn, which would help the lifetime value. That's part one.
Part two, with the partnerships, again, lower cost of acquisition to get these customers, and again, because these partners are incentivized to keep hanging on to the customers, that means less churn and more upsell and retention, so higher lifetime value. If you package it all together, long-term, our sustainable economic margins are going to be trending up higher than we currently have because of these two long-term trends.
Superb, as always. Thank you so much, Mitesh.
Yeah, you bet.
Our next question comes from Rich Valera with Needham & Company. Please state your question.
Thank you. Let me add my congrats on nice execution in the quarter, gentlemen. Questions on AT&T. Sounds like momentum continues to build there, but last couple quarters, you'd given fairly specific quarter-over-quarter gains that you were seeing there. Wondering if there's any color you can add on how AT&T bookings trended quarter-over-quarter, and if there's anything you're willing to say about AT&T perhaps transitioning from a headwind, which I believe you said they were in 2019, and when they might become neutral or a tailwind to your overall growth rate. Thank you.
Thanks, Rich. I'll take that. Again, classic, again, in Wall Street, if you give a metric once, you got to be prepared for giving it every single time. I will say yes, we did see strong bookings in AT&T again this quarter. We did see some decrease in seller participation. Both trends, what you saw last quarter did continue. We are seeing some traction in upmarket as well. AT&T was supposed to be initially an SMB play, but now we're seeing some upmarket there. As it relates to the overall guidance, you called it, Rich. Overall growth, because of the install base still churning and our new bookings not quite offsetting that, for the year, AT&T is turning to be less of a headwind this year, and I think it's going to start to dissipate in 2021.
Got it. Thanks, Mitesh.
Yeah, you bet.
Thank you, ladies and gentlemen. That concludes today's conference. All parties may disconnect. Have a great day.